Hollande leads Europe to growth plan
May 04, 2012
Francois Hollande, the Socialists frontrunner in French presidential elections who outpaced the incumbent Sarkozy in the first round, has found receptive ears across Europe to his call to put growth, along with austerity, on the EU's agenda.
Angela Merkel, the force behind austerity, says she is ready to reconsider her position after the opposition at home, emboldened by the changing mood in France, showed reluctance to lend her support in ratifying the budget treaty and European Central Bank chief said that growth pact was need of the hour.
Germany, the strongest economy of eurozone, suggested this March and with the support of French president Nicholas Sarkozy, commanded the consent of the 25 out of 27 EU countries (UK and Czech Republic the exemptions) for a fiscal treaty that emphasises balanced budgets through taking austerity measures like slashing funds for healthcare and retirement benefits. Budget Treaty makes mandatory for the struggling economies to keep fiscal deficit in the sight of 3% and strive to bring down inflation to 2%. The European Court of Justice has been assigned the responsibility to oversee whether eurozone sticks to the rules.
The European debt crisis has unseated 16 governments, 11 from the eurozone, across the continent since early 2010 giving way to the populist regimes while analysts are predicting a change of guards in France in the second round of presidential elections on May 6. Governments in Greece and Italy were the first to fall prey to the austerity drive as they resigned and were replaced with the ones led by technocrats. The government in Romania has been ousted through a no-confidence move while in Czech Republic it has narrowly survived. In Netherlands, the government has resigned voluntarily upon its failure to follow the austerity agenda.
While the fiscal treaty has yet to be ratified to put in force (with the exception of Greece and Portugal), Germany seems bound to losing the support of France, where a Socialist candidate, Francois Hollande, is likely to trounce the incumbent conservative rival in the second round of presidential elections. Mr. Hollande, after his initial success, categorically said he would like to condition the ratification of Budget Treaty with a Europe-wide growth plan.
The critics of the fiscal pact point out merely competitiveness and deflationary measures can’t help the eurozone crisis where employment rate is touching the mark of 10%. The proposed growth pact will aim at Europe-wide growth policies to bring the troubled economies like Greece, Portugal and Spain out of crisis.
Mario Monti, Italy’s prime technocrat minister and former official of EU who took charge after Silvio Berlusconi resigned last November, is the recent strong voice raised in the favour of growth plan, demanded by Hollande, a respected economist. Conceding that the budget discipline is must, he says the same should be accompanied by the policies that stimulate economic demand in Europe otherwise the crisis will deepen.
“All the structural reforms and budgetary consolidation measures that we are now putting in place, if anything, are deflationary, not creating growth,” a foreign news agency reported Mr Monti telling the European Business Summit in Brussels last week. “Public investment is not necessarily worse for the European economy than private consumption, although the present framework of policy treats it that way,” he said.
Finally, the European Central Bank chief Mario Draghi came out on April 26 to support Hollande’s call for growth plan. He said the stability treaty must be followed by a new pact to promote growth. Merkel just agreed to his proposal and shifting opinion made Herman Van Rompuy, president of the European Council, to say that he was considering an informal summit of EU heads of government before June’s scheduled gathering in order to discuss growth initiatives.